Suburban men charged with bilking investors of more than $500 million

The U.S. attorney’s office announced federal indictments Friday against two suburban men on charges they bilked customers of Sentinel Management Group Inc., of more than $500 million before the firm collapsed in August 2007.

Eric A. Bloom, 47, of Northbrook, the former chief executive officer who oversaw day-to-day operations of the bankrupt company, and Charles K. Mosley, 48, of Vernon Hills, head trader and portfolio manager, were each charged with 18 counts of wire fraud, one count of securities fraud and one count of making false statements to an employee pension plan after federal prosecutors say they misappropriated securities belonging the Sentinel customers and used them as collateral to purchase millions of dollars of high-risk securities for a trading portfolio that benefited Sentinel officers including Mosley, Bloom and members of Bloom’s family.

The case marks one of the largest financial fraud cases ever prosecuted in a federal court in Chicago, prosecutors said.

Sentinel, based in Northbrook, managed investments of hedge funds, commodity pools, futures commissions merchants and at least one pension fund among other customers. The complaint alleges that from January 2003 to August 2007, Bloom and Mosley obtained and retained control over more than $500 million in customer funds by misrepresenting the risks of investing in Sentinel. They also misrepresented the use of customer funds, the value of customer investments and their profitability, prosecutors said.

Prosecutors said that days before Sentinel went bankrupt, Bloom blamed the firm’s problems on the “liquidity crisis” and “investor fear and panic,” even though the reasons had to do with the purchase of high-risk securities and the excessive use of leverage, which resulted in $415 million in debt on a Bank of New York Mellon Corp. credit line four days before Sentinel declared bankruptcy on Aug. 17, 2007.

“The use of their customers’ securities as collateral allowed the defendants to borrow more money than Sentinel otherwise could, subjected the customer securities to potential legal claims by creditors” to the extend that all of the “customer portfolios were at increased risk of ... insolvency,” the complaint states.

Attempts to reach Bloom and Mosley were unsuccessful.

The defendants will be arraigned at a later date. Each count of wire fraud carries a maximum penalty of 20 years in prison and a $250,000 fine or a fine of twice the loss to any victim, or twice the gain to the defendant, whichever is greater. Securities fraud and making false statements to a pension plan carry a maximum penalty of five years in prison and a $250,000 fine.